Equity ESG Essentials
Socially responsible investing continues to gain momentum. Investors are now looking for opportunities in the market that align with their values. Concurrently, companies are updating their mission statements to emphasize additional focus on corporate sustainability.
As a result, Environmental, Social and Governance, or ESG, refers to the three factors in measuring the corporate behavior and potential long-term performance of a company. The emergence of Environmental, Social, and Governance criteria provides a way for socially conscious investors to assess the behavior of companies.
The S&P 500 ESG Index is designed for investors looking to integrate ESG factors into their portfolios, while providing a similar return profile to the S&P 500. Based on the traditional S&P 500 index, the ESG index is comprised of companies that manage their business while conforming to ESG principles and avoid others that are not. Eligibility and selection to the index is based on an ESG scoring system. Firms with the lowest ESG compliance, such as tobacco or controversial weapons, would be excluded.
CME Group is proud to offer E-mini S&P 500 ESG futures – based on the S&P 500 ESG Index. ESG Futures will have a 500-dollar contract multiplier. Assume the S&P 500 ESG Index is trading at $251.50. The notional value of one E-mini S&P 500 ESG futures contract would be $125,750. The tick increment of the ESG Futures contract is quoted in two one hundredths of one index point, making a one tick move in the ESG futures equivalent to ten dollars.
E-mini S&P 500 ESG Futures will expire on a quarterly basis, settling in cash to the official opening value of the Index on the third Friday of March, June, September and December. Cleared through CME Clearing, the futures will allow traders, portfolio managers and other market participants a stable and robust clearing mechanism that is largely free of counterparty risk.
E-mini S&P 500 ESG futures will be available to trade on Globex Sunday afternoon through Friday afternoon, nearly 24 hours a day. Market participants can also execute ESG futures through the Basis Trade at Index Close mechanism. Both outright and BTIC transactions on ESG futures will be block eligible. Margin offsets will also be available for those interested in trading or spreading ESG futures versus other CME stock index products.
Investors now have a futures contract they can utilize to integrate ESG factors into their portfolios or manage their ESG risk.